Senator the Hon Mathias Cormann

The Government has finalised a forensic audit to quantify the level of cost and schedule overruns in the Air Warfare Destroyer Project.

The most reliable estimates now suggest that the project will require an additional $1.2 billion to be completed, which will have to be funded at the expense of other Defence acquisitions.

Delivery of the three Air Warfare Destroyers has also been significantly delayed:

• Ship 1: Original delivery: December 2014 - Revised estimate: June 2017
• Ship 2: Original delivery: March 2016 - Revised estimate: September 2018
• Ship 3: Original delivery: June 2017 - Revised estimate: March 2020

The issues associated with this important program have been widely reported and were part of the legacy of unresolved issues, which the Government inherited from the previous Labor government.

The Air Warfare Destroyer project was in very bad shape when we came into Government, which is why we initiated an independent review into the project.

Since then, the Government has initiated a series of interim reforms recommended by that review to put the Air Warfare Destroyer Project back on track, pending the completion of this forensic audit.

So far the Government has made improvements to the senior management at ASC Shipbuilding and inserted additional shipbuilding and related capability from Navantia, BAE Systems and Raytheon Australia.

Mr Mark Lamarre, from United States naval shipbuilder Bath Iron Works, was appointed as the Interim Chief Executive Officer of ASC Shipbuilding to bring a competent, experienced shipbuilder to the ASC leadership role.

Mr Lamarre came to that role with 25 years of AEGIS shipbuilding experience gained from several senior management roles.

These initial steps have led to significant improvements in labour use and productivity, but there is more work to be done.

Now that the forensic audit has been able to define the new baseline for the project, the Government will begin a limited tender process on 29 May 2015, seeking proposals to either insert a managing contractor into ASC for the remainder of the AWD build or to further enhance ASC capability through a partnering arrangement.

The Government will release an enterprise-level naval shipbuilding plan later this year, which will provide for the long-term future of the Australian naval shipbuilding industry.

Strong and visionary leadership is required to embrace and institutionalise the changes that will lead to a defence industry that is properly structured to operate effectively and drive efficiencies, and a commitment to a productivity-based culture from all parties.

The Government recognises the significant value to our nation of a skilled naval shipbuilding workforce. The Government is prepared to invest in the skills and knowledge base of the Australian naval ship building industry, and is prepared to commit to a long-term investment to make sure this important industry enjoys a future in Australia and these critical skills are maintained.